Panels sector clears one Brexit hurdle

Ingenuity, compromise and industry pressure have dealt with the risk of British companies, including wood panel producers, losing 2018 EU Emissions Trading Scheme allowances as a consequence of Brexit. Combined with promising trade trends, this could make for a happy new year for the sector, says Wood Panel Industries Federation director-general Alastair Kerr

The good thing about being invited to write a January guest column is that you can make a host of predictions about the year ahead, knowing that on probability theory alone, some should come true. However, unless you’re a gambler – and I’m not – predicting the future is a pointless exercise.

The biggest gamble of all came when the UK voted to leave the EU and here, there is no certainty of outcome, ie. “Nothing is agreed until everything is agreed”. I’m not so pessimistic, however, as to believe that there will be ‘no deal’ and, as I engage with government departments, I’m getting a sense that civil servants at least are ‘digging in’ and engaging with the detail of how things could look and operate in the future.

One small, but important example of this determination in action came recently following a move by the European Commission to amend the rules on trading of allowances within the EU Emissions Trading Scheme (EUETS) as a market protection measure in the event of a country leaving the EU.

Because the implementation date of this rule change is March 29, 2019, and before the deadline by which allowances issued in 2018 have to be verifi ed and traded for EUETS compliance purposes, this would effectively render worthless allowances issued by the UK in 2018. If nothing changed, UK industries in the EUETS, including wood panel manufacturers, would both lose allowances and have to pay a fi ne for emissions over the cap at the rate of €100 per tCO2.

The good news is that through civil service ingenuity, pressure from industry and willingness to compromise by the EC, this hurdle has been cleared. In simple terms, the UK government has agreed to change our domestic law so as to bring forward the compliance date for 2018 allowances to before Brexit day.

This fix may have just kicked the can down the road, because it doesn’t deal with 2019 allowances that have to be verified in 2020, but here much hope is being placed on the ‘transition deal’, where everything that is too complicated to be sorted by Brexit day will be bundled, in the hope that it can be resolved afterwards while the status quo is maintained.

Meanwhile, business life must still go on. The forecasts for construction output as a whole are indicating a slowdown in 2018, but new housing is still looking positive, albeit maybe not as strong as it has been in 2017.

In spite of the uncertainty, our members have continued to show a willingness to invest for the long term. During 2017 there was significant investment in both new capacity and in value adding. Particularly in OSB, the new capacity will start to ramp up in 2018, and there are signs that further announcements could be made. Going forward the focus will be on retaining production flexibility and on value adding. Bar any mishaps, 2018 could be a good year!